Energy demand and energy-related CO2 emissions in Greek manufacturing: Assessing the impact of a carbon tax

The purpose of this paper is to study the demand for energy in two-digit manufacturing sectors of Greece and to evaluate the impact of a carbon tax on energy-related CO2 emissions. The theoretical model utilized in the analysis is the two-stage translog cost function. The model is estimated using time series data over the period 1982-1998. The results indicate substitutability between electricity and liquid fuels (diesel and mazout), and substitutability between capital, energy and labor. A carbon tax of $50 per tone of carbon results in a considerable reduction in direct and indirect CO2 emissions from their 1998 level. This implies that a carbon tax on Greek manufacturing is an environmentally effective policy for mitigating global warming, although a costly one.